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WHY CLUSTERING IS IMPORTANT FOR BUSINESS

WHY CLUSTERING IS IMPORTANT FOR BUSINESS
Clusters are geographic concentrations of interconnected companies or institutions that manufacture products or deliver services to a particular field or industry. Clusters typically include companies in the same industry or technology area that share infrastructure, suppliers, and distribution networks. Supporting firms that provide components, support services, and raw materials come together with like-minded firms in related industries to develop joint solutions and combine resources to take advantage of market opportunities.
These are groups of related businesses and organizations – sometimes direct competitors, but more often operating in a complementary manner. They may comprise more than just one industry classification, and a true cluster is more than just a supplier – producer – buyer model.
Benefits of Clustering
A well-developed concentration of related business spurs three import activities: increased productivity (through specialized inputs, access to information, synergies, and access to public goods), more rapid innovation (through cooperative research and competitive striving), and new business formation (filling in niches and expanding the boundaries of the cluster map).
Clusters are always changing. They respond to the constant shifting of the marketplace and usually begin through entrepreneurship. Clustering helps cities and counties direct their economic development and recruiting efforts. It also encourages communities to refocus efforts on existing industries. Communities understand that the best way to expand their own economies and those of other surrounding region is to support a cluster of firms rather than to try to attract companies one at a time to an area. Chambers of Commerce, business incubators, and some universities work with companies to develop clusters and synergies in business communities.
Strong domestic clusters also help attract foreign investment. If clusters are leading centers for their industries, they will attract all the key players from both home and abroad. In fact, foreign-owned companies can enhance the leadership of the cluster and contribute to its upgrading.
For small and developing businesses, locating a cluster near competitors and related industries may aid the firm in faster growth, recognition, and status within the market. Economies of scale can be gained by group purchasing within the cluster. There can be discussions among cluster members about their unique competitive advantages and future challenges. Linked supply chain networks can naturally be created within a highly-linked cluster.
Informal day-to-day contact with similar companies is also important. Physical location proximity is not always required to be a cluster. Many firms, including retailers and publishers, can be grouped together on an Internet site.
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